California is Cracking Down on Unreasonable Health Insurance Premium Hikes
For too long, insurance companies in many States have increased health insurance premiums with little oversight, transparency, or public accountability. Some States have both the authority and the capacity to review insurers’ proposed health insurance premium increases. Just 26 States and the District of Columbia have the authority to reject a proposed increase that is excessive, lacks justification or exceeds certain standards. Many do not, and some who have the authority lack the right tools to exercise that authority to reject excessive premium increases. This lack of authority and resources for States has unfortunately contributed to unjustified premium increases. Health insurance premiums have doubled on average over the last 10 years, much faster than wages and inflation, putting coverage out of reach for millions of Americans and business owners.
The Affordable Care Act provides States with $250 million in Health Insurance Premium Review Grants over five years to help states like California help transform the way they review proposed health insurance premium increases, take action against insurers seeking unreasonable rate hikes, and ensure consumers receive value for their premium dollars.
On August 16, the Department of Health and Human Services announced the award of $46 million in the first round of these grants, including $1 million for California. The following is a general summary of how California intends to use its funding:
- Pursue Additional Legislative Authority: The governor will present legislation that synchronizes review activities across the Department of Managed Health Care and Department of Insurance offices. California’s Department of Managed Health Care conducts limited review of small group and guaranteed issue rates for HMO and other managed care plans. The California Department of Insurance reviews health insurance premium increases in the non-HMO market prospectively. An actuary reviews rates for compliance with California’s 70 percent medical loss ratio rule and also assesses actuarial assumptions and trends. Insurers are contacted regarding most filings and approximately two thirds resubmit lower rates. For small group, plans must demonstrate compliance with rate factors requirements. There is no large group review by either entity.
- Expand the Scope of the Review Process: California will expand the authority of the Department of Managed Health Care to collect and review all submitted individual and small group health insurance premium increases.
- Improve the Review Process: The Department of Managed Health Care currently has limited review authority. Both the Department of Managed Health Care and the Department of Insurance will improve the collection of health insurance premium information, enhance the depth and breadth of current rate review activities, and make IT system improvements. The Department of Managed Health Care will initiate actuarial review of filings and the Department of Insurance will enhance its existing actuarial review capacity.
- Increase Transparency and Accessibility: Currently only the Department of Insurance posts filings by insurance companies. The Department of Managed Health Care will also begin to post filings and both agencies will educate consumers on influential underlying factors of cost data so consumers are able to understand the cost of health care choices.
- Develop and Upgrade Technology: California will build the infrastructure necessary to scrutinize a significantly greater number of rate proposals.
The Health Insurance Premium Review Grants are one element of a broad effort under the Affordable Care Act to reduce the unsustainable rates of increase proposed by some insurers today. Additional resources from this $250 million program for rate review will be available in subsequent years to further strengthen State health insurance premium review procedures.